Western Balkan Investment Framework (WBIF) Project Grant Application Form Submission date: 10/02/2011 Contribution Request nr WB5-HR-ENE-03 WBIF decision sought Approved Under review 1 Non-approval Proposal of the Project Financiers group: Proposal endorsed by the Project Financiers’ Group for submission to the Steering Committee on 23/06/2011 Grant Contribution from WBIF: from EWBJF: 500,000 Euros WBIF Screening (cf. Screening list in Annex 2) Eligible for assessment. Concern of possible market distortion to be considered. Assessor: KfW WBIF Assessment (cf. Assessment list in Annex 3) Recommended for submission to the Steering Committee. Will be the first wind and solar project in Croatia. To be filled by the submitter Title of the Operation: Beneficiary(ies)/ Country(ies) Documentation for wind and solar projects in Splitskodalmatinska County, Croatia HEP-Obnovljivi izvori energije d.o.o. / Croatia KfW (Interested) Lead IFI Energy Eligible Sector Energy generation and supply Sub-sector DAC Sector 2 Wind and solar power 23068 and 23067 DAC code Location Croatia Borrower / Beneficiary(ies): (contact points for both) HEP-Obnovljivi izvori energije d.o.o., Ulica grada Vukovara 37, 10 000 Zagreb, Croatia – director: Mr. Goran Slipac Project description : (description of the required 1 2 HEP-Obnovljivi izvori energije d.o.o. (HEP-Renewable Energy Sources Ltd.), subject to the finalisation of the approval procedures of the corresponding institutions www.oecd.org/dac/stats/data 1/8 Western Balkan Investment Framework (WBIF) investment(s) and the present situation, including problems to overcome) HEP OIE, is developing two combined wind and solar projects in Splitskodalmatinska županija (County) in Croatia, namely: Zelovo (wind 30-60 MW, solar TBD) and Stražbenica (wind 22 MW, solar TBD). Zelovo is being developed in 100% ownership of HEP and Stražbenica is expected to be realized in 50-50% cooperation with Dalekovod d.d. Both wind projects received so far Preliminary Energy Approval (PEA) from Ministry of Economy, Labour and Entrepreneurship. The PEA gives HEP OIE (Zelovo, Stražbenica) exclusive access to those locations for three years, during which the application for Location Permit must be submitted to the Ministry of Environmental Protection, Spatial Planning and Construction. For the purpose of further development, it is necessary to evaluate wind and solar potential on the sites, investigate environmental impacts, assess grid connection possibilities and assess economics. Details for each project follow. Zelovo (wind 30-60 MW; estimated investment: 90 mil.€ for 60 MW; solar unknown) is located near the city of Sinj. Wind measurements on 46m mast are ongoing and additional 100m measurement will be set up in spring 2011. Preliminary wind study and optimization was created based on 46m measurements for 33 MW, but there is a clear possibility for expansion of the location. Grid connection possibilities were evaluated through grid study and examined by HEP TSO, but the project is currently on the waiting list because of current grid limitation to 360 MW. Investigations for the EIA are ongoing (ornithology, bats, conservation, geology and pedology). Project was submitted for introduction to spatial planning documents of the County as combined wind and solar project and should be accepted within the next amendments. Solar measurements should be set up in spring 2011 latest on existing wind measurement masts. Stražbenica (22 MW, 35 mil.€ ; solar unknown) is located near the city of Sinj. Wind measurements on 50m mast started in June 2010 and are already showing promising results. Some preliminary environmental investigations of the location were done, but not in much detail. Investigation of bird and bat species should begin in February/March 2011. Grid connection possibilities were not thoroughly evaluated, but some options exist. Projects were submitted for introduction to spatial planning documents of the County as combined wind and solar project and should be accepted within the next amendments. Solar measurements should be set up in spring 2011 latest on existing wind measurement masts. Outcome / Results to be achieved for the investment: (specify the foreseen results, indicate 1. the economic 2. the social 3. the environmental benefits produced by the investment as well as the estimated number of direct beneficiaries) Proposed investment should achieve the following results: - construction and realization of feasible and profitable wind and/or power plants – according to the feed-in tariff in Croatia (in 2010: 9,93€c/kWh for wind farms over 1 MW installed capacity; in 2010: in range from 30 to 50 €c/kWh for solar plants, depending on the installed capacity) - revitalization of economy of local communities (according to Croatian legislation, local communities with wind power plants over 1 MW receive 0,01kn for every kWh produced) - employment of local and regional resources during preparation, construction and operation of the objects - reduction of CO2 emissions of more than 140.000 tons of CO2 annually Financing of the grant would cover wind studies, feasibility studies and preparatory documents for location permit, which are necessary for further development of projects. 2/8 Western Balkan Investment Framework (WBIF) Both locations have already undergone a certain prefeasibility analysis and some measurements already exist or will be set up before the start of activities from the grant. Feasibility studies would determine whether the location is suitable to be wind power plant, solar power plant or are there possibilities to combine the two technologies together on one location. Description of the Grant use: (precise what is concretely financed and the expected outcomes) Feasibility studies for the three locations would, in general, include the following: - Preparation of bankable location study including wind study and solar potential evaluation through wind study including optimization, evaluation of turbulences and determination of wind class needed for the site, based on existing wind and solar measurement data and other available data (i.e. ALADIN data, Sander&Partner data); if missing, long term data from Croatian meteorological institute should be purchased by Consultants - Conceptual Design of the power plant, from which further development of Preliminary Design for Location permit could be evolved - Preliminary grid connection study (PAMP), according to requirements of HEP-Transmission System Operator or HEP-Distribution System Operator, including participation in the process (meetings, clarifications, etc.) - Environmental impact assessment, according to requirements of current legislation (NN 89/07, NN 64/08, EC Guidelines for EIA for wind farms from October 2010),) and Ministry of Environmental Protection, Spatial Planning and Construction, including participation in the process (meetings, site visits, public hearings, clarification, etc.) - Strategic Environmental Assessment, according to requirements from current legislation (i.e. EC Guidelines for EIA for wind farms from October 2010, including participation in the process (meetings, site visits, public hearings, clarification, etc.) - Financial model that would include calculation of profitability, cost benefit, risks, sensitivities Feasibility studies financed through this Grant will be used to help HEP OIE, and also the Project Company to obtain a loan for the realization of the project(s). In April 2009, European Commission adopted a new Directive on the promotion of the use of energy from renewable sources. This Directive establishes a common framework for the promotion of energy from renewable sources. It sets mandatory national targets for the overall share of energy from renewable sources in gross final consumption of energy and for the share of energy from renewable sources in transport. Strategic justification: (specify which strategy and/or investment plans both at national and regional level include the proposed project) Can you describe how the project is in line with - EU pre-accession strategy - National strategy -Other donors strategy? At this point, Croatia does not have a mandatory national target prescribed by the EU. However, in October 2009 the Croatian Parliament adopted a new Energy Strategy (NN130/2009) with the objective of 20% share of renewables in total energy consumption and 35% in electricity consumption. In the last years share of renewables in electricity consumption varies between 30 and 40% depending on the hydrology (large hydro power plants). With regard to wind power, Energy Strategy states the following (Section 9.2.4): “Government of the Republic of Croatia shall create favorable investment climate and encourage construction of wind power plants so that their share in total electricity consumption reaches 9 to 10% in 2020. Government of the Republic of Croatia will encourage construction of wind power plants. It is expected that installed capacity of wind power plants in Republic of Croatia in 2020 reach 1200 MW. Dynamics of construction of wind power 3/8 Western Balkan Investment Framework (WBIF) plants will be determined in implementing programs of Energy Strategy, depending on the regulation capabilities of Croatian power system, balancing possibilities of Croatian power system in open domestic energy market, capabilities of domestic industry and other operations to participate in construction of wind power plants and available budget for incentives.” With regard to solar power, Energy Strategy states that the Republic of Croatia will support development of photovoltaic systems, as well as CSP systems. Additional comments on the project: (duration, constraints, partners/site availability, assumptions and risks appraisal etc..) The last spatial/physical plan of Splitsko-dalmatinska County was adopted in 2005 and changes and amendments are expected to be announced in 2011. Introduction of projects in spatial planning documents is a prerequisite for Environmental Impact Assessment. All projects were submitted for introduction to spatial planning documents of the County and should be accepted within the next amendments. The County is familiar with those projects, as HEP OIE informed them several times by either written notice or on joint meetings and they expressed their general interest in those projects. Grant request justification: (Why a grant contribution is needed for the Project completion?) There are several reasons why a grant is needed for further development of projects: - Mother company of HEP OIE, HEP d.d., currently needs to work on fulfilment of Government’s requirements for construction of big power plants, and therefore will focus the resources on those projects. As wind power plants are smaller, the amount of funds and resources for such projects are quite limited. - Although there are a number of registered potential wind projects (reserved land plots) in Croatia by private investors from 2007, so far not a lot of wind farms were actually built. Croatian objective for 2010 was to have 5,8% share of renewables (excluding large hydro) in overall electricity consumption, but Croatia only reached around 2%. HEP OIE’s objective is not to acquire, develop and then sell interesting land plots, but to build and operate wind power plants and also to become a leader in renewable energy sector in Croatia and possibly in region. HEP OIE, with already defined pipeline of potential projects, has the capacity and strength to realise such projects and could truly contribute to the objective of Croatian Energy Strategy that includes 1.200 MW of wind power plants in 2020. This grant would enable HEP OIE to significantly speed up the work on the projects; especially with HEP d.d.’s resources being focused on big power plants. - The concept of combined wind and solar power plants was not yet examined in Croatia and the region, so development of such concept or construction of such power plant would also serve as a kind of pilot project for potential regional deployment of such facilities. - Apart from the monetary value of the grant, this grant would carry additional benefits for HEP OIE’s projects because key experts would be transferring the necessary know-how to HEP OIE’s employees that would otherwise be difficult to acquire. - The studies and works under the grant would represent a credible source of information for financing institutions and would be a basis on which HEP OIE would find and contract financing at the best possible conditions. Conformity with the eligibility checklist: summary The project is in conformity with the checklist. (cf. list in Annex 1) 4/8 Western Balkan Investment Framework (WBIF) Title of the Operation: Type of Contribution 3 (type of grants) Documentation for wind and solar projects in Splitsko-dalmatinska County, Croatia Technical Assistance – FS for 3 Wind Energy / Solar plants. (including EIA, SEA, Location and economic aspects) Total Investment Financing Plan (Annex 4) EUR equivalent In Project Currency Curr. estimated: 125M€ 912.500.000 HRK To be adapted case by case Finance Institution Total (€ M) EC Contribution IPA WBJF EBRD EIB CEB KfW 0.5M Remarks (grants/loans) Grant for FS 124M Estimated Loan, depending on contribution from private sources. Not yet known – land acquisition costs. To be determined in FS Beneficiary Contribution Total Financing (€) Costs 125M 100% Activities Project preparation 5M Investment … 120M Total activities 125M Total Grant requested €0.5M Total Loan requested Around 125M, depending on outcome of FS FS, Detailed Design, Supervision 100% Eligible Finance Institution Consortium Lead Finance Institution KfW Other Eligible FI (EFI) member of the consortium Project Chronology Contact person Phone Claudia Hirtbach +49 69 7431-4856 email [email protected] Contact person Phone email Assessment mission WBIF steering committee approval date of signature of the loans foreseen with the beneficiary start of project end of project 3 The grant financing to a specific investment project (“Grant operation”) may take the form of: 1) Technical assistance: financing technical assistance including preparatory work for eligible investment projects such as impact assessments, feasibility studies, detailed design, project supervision and targeted capacity building and implementation support. 2) Investment grants: direct grants for specific project components, as well as incentive schemes based on performance of implementing institutions. 3) Incentive payments to financial intermediaries. 4) Interest rates subsidies: provision of a lump-sum amount to ensure that the loan finance needed for the investment project can be made available at reduced interest rates. 5) Insurance premia: funding of insurance premia necessary to implement the investment projects. 6) 5/8 Western Balkan Investment Framework (WBIF) Annex 1: Eligibility checklist Yes 1 Operations covered by the WBIF benefit one or more of the following beneficiaries: Albania, Bosnia and Herzegovina, Croatia, former Yugoslav Republic of Macedonia, Montenegro, Serbia and Kosovo under UNSCR 1244. Y 2 Fall within one of the eligible sector: Environment: water supply, waste water treatment, sewage systems, solid waste and hazardous waste management, emission control etc.; Energy: renewable energy, interconnection systems, transmission, co-generation, hydro, and gas pipelines, etc.; Energy efficiency and savings; Transport: railways and inland waterways including river ports, roads, seaports, airports, border facilities, inter modal terminals and urban transport; Social: schools and education centres, hospitals and health centres, social housing, reclusion centres and other public buildings; SME, private and financial sector support Y The project is not supported by or eligible for the Regional Development Component of IPA Y 3 project benefit public or private entities or entities with mixed public-private capital responsible for the provision, management, construction and negotiation of public utilities and services Y 4 All elements included under the activities covered by a WBIF grant for the investment projects are in principle eligible for grant financing Y 5 The project is submitted by the Beneficiary, either via the NIPACs5 or via the partner IFIs Y 6 The project is consistent with the EU Pre-Accession Strategy and relevant sector policies and national investment plans Y 7 Grant requests explicitly mention any complementarities or coherence with projects supported or planned for support under the IPA National Programmes (for implementation by the EC Delegations or by the Beneficiaries authorities) and/or other donors activities Y 8 The borrower/beneficiary intend to use the leverage of a loan through the Joint Lending Facility for this project Y 9 Grant operation is be consistent with the policies, rules and procedures of each source of funds (Commission, EIB, EBRD, CEB and EWBJF) Y 2bis 4 4 When calculating the eligible costs of a project that may benefit from grant financing or co-financing, the rules and procedures of the Commission, the partner IFIs and the EWBJF will apply. Eligibility of IFI Grant financing should be confirmed with co-financiers. According to the IPA Regulation the following expenditures are not eligible: a) taxes, including value added taxes (in principle); b) customs and import duties, or any other charges; c) purchase, rent or leasing of land and existing buildings; d) fines, financial penalties and expenses of litigation; e) operating costs (can be allowed on a case-by-case basis); f) second hand equipment; g) bank charges, cost of guarantees and similar charges; h) conversion costs, charges and exchange losses associated with any of the component specific euro accounts, as well as purely financial expenses; and i) contributions in kind. In addition, any leasing costs or depreciation costs are not eligible. In the case of revenue-generating projects, meaning a project involving an investment in infrastructure, which is subject to charges borne directly by users, the eligible cost is calculated according to a funding gap method deducting the value of the net revenue over a specific time from the value of the investment cost. 5 NIPAC = National IPA Coordinator. The NIPAC is responsible for coordination of programming and monitoring the implementation of IPA in the Beneficiaries of the Western Balkans and Turkey. As IPA represent the biggest source of external aid and is linked to the progress and development needed in the EU accession process, and in line with the local ownership over donor funds and donor coordination as foreseen in the Paris declaration, the involvement of the NIPAC is of utmost importance for the effectiveness of the JGF and the WBIF. 6/8 No Western Balkan Investment Framework (WBIF) Annex 2: Screening (to be filled by the DG Elarg) How can you ensure that beneficiaries NIPACs (National IPA Coordinators) have been adequately involved and are supportive of project? How the project is consistent with national (sector) strategies, national and regional investment plans and with the IPA priorities and the project potential for IPA support (not allocated via the JGF) or other donor funding? How the project is consistent with EU policies (pre-accession agenda, sector priorities, competition rules etc.) drawing from and involving the EC Delegations, line DGs and ELARG geographical teams? Assess eligibility of projects for support from the JGF and the appropriate mix of funding sources Conclusion 7/8 Western Balkan Investment Framework (WBIF) Annex 3: Assessment (to be filled by the lead IFI)6 Rationale for use of grant funds The Financing Plane Regional / Cross Border Impact Conformity with socioenvironmental standards Economic and Financial justification Capacity of Beneficiary institution Proposal Contribution: from EWBJF XXX € 100 % XXX € % from other Funds Type of Intervention : … grant Annex 4: Indicative Financial Plan Envisaged (€) (to be filled by the lead IFI) 6 - As per ToR the Lead IFI has checked the following aspects: Technical aspects, environmental and social standards, procurement, financial and economic profitability, credit risk, legal aspects. Consistency with IFIs’ policies and procedures Analysis and estimation of TA/grants needs Financial structuring/identification of lending under the Joint Lending Facility (only IFIs) Identification of lead IFI and possible mutual reliance Link with project borrowers and promoters on technical and financial aspects Exchange of information among Finance Institutions (e.g. pricing, conditionality) 8/8
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